Mexico can do more to promote socially-inclusive green growth

08/01/2013 - Mexico is faced with difficult trade-offs as it pursues its economic, social and environmental goals. Like other emerging economies Mexico is balancing the need to protect its natural resources with the need to address high levels of income inequality and poverty.

This OECD Environmental Performance Review of Mexico outlines steps the country has taken to address growing environmental pressures and identifies cost-effective policies and practices to further its efforts.

“Mexico’s triple challenges are to boost its economy, improve its environment, and provide decent living standards to all its citizens. Environmental degradation and dwindling natural resources cost Mexico 7% of its GDP in 2010 according to Mexican estimates. But the right mix of policies can promote inclusive green growth” said OECD Secretary-General Angel Gurria.

Though Mexico’s new General Law on Climate Change calls for a 50% reduction in green house gas emissions by 2050 from the 2000 level, emissions continue to rise and additional policy measures are needed, particularly in the transport sector.

Mexico spent 1.7% of GDP on energy subsidies over 2005-09, including those for transport fuels and electricity use by households and farmers. The Review recommends extending the use of environmentally related taxes and reforming environmentally harmful subsidies in order to tackle climate change and reduce inequality. Most of the subsidies benefit the rich more than the poor: for example the poorest 20% reap only about a tenth of electricity subsidies and even less of transport fuel subsidies. Replacing indirect subsidies – artificially low prices for energy and water – with cash transfers would help the poor, encourage efficient use of energy and water, and help to promote more socially-inclusive green growth.

Other incentives such as low taxes on vehicles and tax credits on road tolls have also contributed to drive energy use by the transport sector up by more than 40% from 2000-10. Increasing transport-related tax could serve environmental and social goals by funding low-carbon mass transit systems.

With 1/3 of the country in forest cover and some 12% of the world’s biodiversity, Mexico has pioneered the use of Payments for Ecosystem Services to save these globally valuable resources. Though protected areas have been expanded over the last decade, and green certification for coffee and timber is growing, further efforts are still needed to combat pressures on biodiversity, in particular from agriculture.

The report presents 29 recommendations including:

Gradually reduce subsidies to energy use, agriculture and fisheries that harm the environment, and replace them with targeted cash transfers to low-income households and small farmers.

Introduce an excise tax on transport fuels and energy products that reflects the environmental costs associated with their use, while providing targeted cash transfers to those adversely affected.

Further develop sustainable urban transport systems by scaling up and rolling out investment in low-carbon mass transit.

Review the efficiency and effectiveness of economic instruments for the conservation and sustainable use of biodiversity and forests.